The yen briefly strengthened beyond JPY158 to the US dollar in Tokyo late on July 30, prompting speculation that Japanese authorities had intervened to support the currency.

According to the local Kyodo News, the move came after the yen had fallen to its weakest level against the dollar in around 40 years, amid concerns that Prime Minister Sanae Takaichi will pursue expansionary fiscal policy despite Japan's deteriorating public finances.

By 5pm local time, the yen was trading back at JPY163.73-74 against the US dollar.

The sharp move surprised currency markets. It came a day after the US Federal Reserve left interest rates unchanged and only hours before the Bank of Japan was due to announce the outcome of its two-day monetary policy meeting.

Market participants said the sudden appreciation was difficult to explain. Some suggested the Japanese government may have judged that the dollar selling that followed the Federal Reserve's decision to leave rates unchanged provided a favourable opportunity to intervene.

Japanese authorities are believed to have last intervened in the foreign exchange market between April and May, selling US dollars and buying yen.

Earlier on July 30, Takaichi announced plans to cut the consumption tax on food and beverages to 1% from 8% for two years from next April, the first reduction since the tax was introduced in 1989.

Many investors have expressed concern that implementing the tax cut without identifying replacement funding will further weaken Japan's fiscal position, already the poorest among the world's major economies.